CheckLists.Tax (beta)
i12. Disposal of interest in trust
FORMALITIES
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- Requirement for signed writing
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XX
Legislation: LPA 1925, s.53(1)(c);
Cases:
HMRC manuals:
Commentary:
See also:
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INCOME TAX
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Settlements code
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- Release/assignment of interest in trust may be a settlement
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General rule
- Settlement includes any disposition etc. (ITTOIAs.620(1)).
- Surrender is "clearly a disposition" (Buchanan at 374).
- Consider the three settlements charges (Settlor/spouse retains an interest; income paid to minor children of settlor; capital sum to settlor/spouse).
- See further
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Examples
- Buchanan - Daughter surrendered reversionary life interest under will, followed by her father releasing his life interest upon which Daughter's children became entitled to the income. Held that the Daughter was a settlor in favour of her children. "...it is in consequence of that disposition that income is paid for the benefit of the children of Lady Dufferin. She is the settlor because, if a disposition is a settlement, the person who disposes is the settlor. The income is being paid for the benefit of her children." (at 374)
- d'Abreu - Deed of release and assignment of T's contingent reversionary interest in the income with the effect that the income became payable to T's children was a settlement, the income was provided by T.
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Legislation:
Cases:
Buchanan v. IRC 37 TC 365;
d'Abreu v. IRC [1978] STC 538;
HMRC manuals:
Commentary:
See also:
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CAPITAL GAINS TAX
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Charge on disposal of asset
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- XX
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s.76
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Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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Deemed disposal of underlying assets
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- Disposal of interest in UK resident, settlor interested (or previously settlor interested) trust, giving MV deemed disposal
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General rule
- If:
(1) An interest in settled property is disposed of;
- interest includes any right to/in connection with enjoyment of benefit created or arising under the settlement (Sch 4A, para 2).
(2) The disposal is for actual consideration;
- does not include deemed consideration.
- consideration may be given or received by any person.
- disregard consideration in the form of another interest in the settlement that has not been disposed of for consideration.
(3) The trustees are UK resident;
(4) The settlor is UK resident or was resident in any of the 5 previous years;
- if there are multiple settlors, any settlor being UK resident is sufficient.
- meaning of settlor: see para 12.
(5) The trust is settlor-interested or was settlor interested in the previous 2 years;
- Or comprises property derived from a settlor-interested settlement.
Then: the trustees are treated as disposing of and immediately reacquiring the relevant underlying assets (TCGA Sch 4A) for market value (para 9).
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Relevant underlying assets
- Which assets (para 8(1)):
- Interest in specific fund or defined part of settled property: disposal of all/part of those assets.
- Not an interest in specific fund/defined part: disposal of all/part of all the assets.
- What proportion of those assets (para 8(2))
- Interest in a specific fraction or amount of income or capital: disposal of corresponding part of each asset.
- Not an interest in a specific fraction/amount: disposal of the whole of each asset.
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Avoid double counting where disposal of trust interest is chargeable
- See para 10.
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Gap between option/contract for disposal and practical completion
- See para 13.
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Maintenance funds for historic buildings exclusion
- See para 14.
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Legislation:
Cases:
HMRC manuals:
Commentary:
See also:
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